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Last Updated: Jul 02, 2013




Russian house prices are rising - but only just, after inflation has been taken into account, and not in Moscow or St. Petersburg. The price index for all resale apartments in Russia rose by 10.39% during the year to Q1 2013, according to the Federal State Statistics Service (Rosstat).  Adjusted for inflation this represents only a 3.05% real price rise.

In Moscow, Russia’s capital, the price index for resale apartments rose by only 6.17% y-o-y to Q1 2013. When adjusted for inflation, house prices actually fell by 0.89%.

In St. Petersburg, the country’s second largest city, the price index for resale apartments rose 5.31% during the year to Q1 2013.  When adjusted for inflation, house prices fell by 1.68%.

Russia house pricesRussia had a massive housing boom from 2000 to 2007, with secondary market prices skyrocketing by 436% while primary market prices rose 362%.  Property prices started to weaken in late-2008, and began falling in the second quarter of 2009.

At RUB 48,795 (US$ 1,485) per sq. m. the average price of new apartments is still 7.6% down in the first quarter on the 2008 peak price, which was RUB 52,799 (US$ 1,607) per sq. m.

According to the Land Code of 2001, private ownership of land properties is allowed for both locals and foreigners. The legislation was extended to Moscow in January 2006.

Analysis of Russia Residential Property Market »


RENTAL YIELDS
Last Updated: Jun 01, 2013



An apartment in an elite neighborhood in Moscow costs on average EUR 11,000 to EUR 16,000 per sq. m. If you have a million Euros, you can only buy a small apartment. A 75 sq.m. apartment costs on average EUR 800,000 or EUR 11,000 per sq.m.

Monthly rents per sq.m. in Moscow range from EUR 39 to EUR 41. This means that a 120 sq.m. apartment can be rented out for around EUR 5,000 per month.

In St. Petersburg, prices per sq.m. of apartments range from EUR 5,000 to EUR 6,000. This means that a 120 sq. m. apartment costs on average EUR 700,000 or EUR 6,000 per sq. m.

Monthly rents per sq. m. in St. Petersburg range from EUR 20 to EUR 23. This means that a 120 sq.m. apartment can be rented out for around EUR 2,500 per month.

Gross rental yields from apartments if fully rented range from 3.10% to 4.52% in Moscow, while in St. Petersburg, rental yields range from 4.25% to 6.13%.

Read Rental Yields  »



TAXES AND COSTS
Last Updated: Jun 19, 2014



Rental Income: Rental income for nonresidents is taxed at the flat rate of 30%.

The rental income of foreign legal entities without a permanent establishment in Russia is subject to withholding tax, levied on gross rentals at 20%.


Effective Tax Rate on Rental Income

Monthly Income€1,500€6,000€12,000
Tax Rate30%30%30%
Click here to see a worked example
Source: PWC Disclaimer

Capital Gains: Capital gainsrealized by nonresidents for selling Russian property are taxed at a flat rate of 30%.


Effective Tax Rate on Capital Gains

Property Value €25,000€2 million
Tax Rate60%60%
Click here to see a worked example
Source: PWC Disclaimer

Inheritance:There are no inheritance taxes in Russia.Residents: Residents are taxed on their worldwide income at a flat rate of 13%.


Read Taxes and Costs  »



BUYING GUIDE
Last Updated: Jun 20, 2014



According to Global Property Guide research, total roundtrip costs are between 20% and 25.5% of the property value, among the highest in Europe. Bulk of the cost goes to VAT at 18%. Brokerage fees amount to 2% for properties more than US$2 million, otherwise the fee is 5%. The buyer should be cautious when buying unfinished units.

Read Buying Guide  »



LANDLORD AND TENANT
Last Updated: Nov 13, 2006



Russia properties and real estateRussia’s rental market is pro-tenant.

Rents: Rent is by agreement between the parties. However, rents can only be adjusted after one year.

Tenant Security: The tenant can only be evicted after non-payment of rent for six months. However, the tenant is given up to a year to amend the violation. The tenant can also cancel the contract anytime simply by giving a three months’ notice.

Read Landlord and Tenant  »



ECONOMIC GROWTH
Last Updated: Jul 02, 2013


Economic slowdown in 2013

Russia economic indicatorsRussia (GDP/cap. US$ 14,247) is the world’s largest country, with a land area greater than the rest of Europe and USA combined. Although the population has been declining, and currently stands at 142 million, Russia is the world’s ninth most populous country.

Russia has the world's largest natural gas reserves, the 2nd largest coal reserves and the world’s 8th largest oil reserves. It is the world's leading natural gas exporter and the second leading oil exporter. In 2011, the country was the world’s second largest oil producer, next to Saudi Arabia.

Russia also has huge amounts of mineral reserves including platinum, nickel, aluminum, iron ore, copper gold and diamond. Oil, natural gas, metals, and timber account for more than 80% of Russian exports abroad. Revenues from oil and gas account for 50% of Russia’s budget.

The continued recession in the Euro area has affected investments in Russia as well as the demand for its commodity exports, causing GDP to grow by only 1.6% y-o-y in Q1 2013, the country’s weakest growth pace since 2009.

GDP is expected to grow by only 2.3% in 2013.

The country fell deep into recession in 2009, with GDP contracting 7.8%, after global energy prices dropped. It was Russia’s deepest recession in 15 years, after robust economic growth from 1999 to 2008 (average GDP growth of 6.8% p.a.) thanks to booming energy and commodities revenues. The recession was followed by a strong recovery with Russia’s GDP growing by 4.5% in 2010 and 4.3% in 2011. In 2012, Russia’s economic growth was rather solid at around 3.4%.

Unemployment never became a serious problem. In fact, Russia’s unemployment rate has been on a persistent downward trend, from over 9% in January 2010 to around 5.2% in May 2013. However, unemployment rates within the country’s Federal Districts were highly differentiated, ranging from around 3.3% in Central Federal District to 13.3% in North Caucasus Federal District, according to Rosstat. The lowest city unemployment rates in May 2013 were in St. Petersburg (1.2%) and Moscow (1.6%).

The country’s annual inflation was at around 7.4% as of May 2013, the highest rate in 21 months, driven by some regulated prices and food costs. The rate was below the average interest rate of 10.2% y-o-y from 2003 to 2012, but it was still higher then the Russian central bank’s target of 5% to 6% target by end-2013. The IMF expects inflation to fall in 2013 to 6%.

Vladimir Putin was first elected Russia’s president in 2000. In the years of Vladimir Putin’s two-term presidency, and during his term as prime minister (2008-2012), the country’s booming economy and assertive foreign policy ensured him solid voter backing. But increasing corruption, the weak rule of law, and the formation of a Putin-connected oligarchy have combined to undermine his popularity among the politically-conscious middle-class and the elite. Despite his re-election as president in March 2012 on a massive majority for an extended 6-year term, the honeymoon between Putin and the ‘thinking elite’ is definitely over, and there are fears that the increasingly ‘crony capitalist’ power structure will weaken Russia’s dynamism and its attraction for foreign investors.







  • Rapid economic growth
  • High costs yet moderate yields
  • High rental income tax & VAT
  • High transaction costs
  • Pro-tenant rental market
  • Several ownership issues
RESIDENTIAL PROPERTY FACTS
Price (sq.m): €12,227 For a 120 sq. m. property, usually an apartment.
Rental Yield: 3.80% For a 120 sq. m. property, usually an apartment.
Rent/month: €4,649 For a 120 sq. m. property.
Income Tax: 30.00% Assumptions: Owners are a non-resident couple drawing US$ / €1,500 per month in rent, with no other local income.
Roundtrip Cost: 25.00% The total cost of buying and then reselling an apartment. Includes:

* all transaction taxes and charges:
* lawyers' and notaries' fees
* agents' fees

Assumptions: The buyers are non-resident foreigners. The apartment cost US$250,00 / €250,000.
Cap Gains Tax: 30.00% Assumptions: The property was bought for US$250,000 / €250,000, and sold 10 years later, after a 100% appreciation.
Landlord and Tenant Law: Pro-Tenant Rating is based on a detailed study of each country’s law and practice.

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